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Manage the Contract by Joe Auer

Let’s look at another of the truths of technology deal-making that can help you wind up with the best possible terms. The goal is not only to negotiate a great deal, but also to ensure that what you negotiated is what you get when the ink is dry. Contract management is essential, even critical, in pulling this off. You’re wasting your time negotiating with a vendor if you don’t plan on assertively managing the contract and the relationship. If you don’t focus on the ongoing vendor-management process, you’ll have rights that go unrealized and get waived, because, as lawyers tell us, “rights that aren’t assertively enforced can end up being waived by the courts.” You’ll have people in your organization who aren’t even aware of the specific results the vendor is obligated to produce, so you won’t get what you’re paying for, and you’ll have endlessly unpleasant surprises.

Some say, “I’ll be so glad when we’ve finished negotiating this contract. I never want to see it again.” And in many cases, that contract is never seen again. In fact, sometimes the contract can’t even be found when it’s needed.

Experience has taught us that contract management begins during contract development and negotiations. That’s when you build in the metrics and the hooks and handles for effective relationship management. That’s when you need to decide how you’re going to manage the vendor.

You should think beyond just closing the deal; you have to anticipate the whole relationship and how to manage it.

There are three high-level objectives when you manage a contract: vendor compliance, customer compliance and evidence of the status of each. Let’s look at a few things that go a long way to ensuring that what’s supposed to happen really happens.

For instance, some suggest, “How about a deal summary for the end users once the contract is completed?” That’s a great idea, but you need more than a written summary. Not everyone learns well through reading. And not everyone will even take the time to read the summary. So hold briefing sessions. Present the end users their rights and obligations and say, “You’re on the front line, the first tier of relationship management. Here are the service levels and how we monitor compliance.” Let them know how to determine specific performance deficiencies and log their occurrences, how and when to report them and which manager to report them to. Educating and interacting with people on what the contract says and on their roles are necessary parts of a contract management process.

At a recent seminar, the asset manager of a major insurance company stated that his contract management group regularly saves his organization more than $300,000 a month. A manager with one of the country’s leading telecommunications suppliers asserted that her department’s contract management team is responsible for monthly savings of more than $1 million. Both attributed their success to the fact that they assertively manage the contracts and vendor payments within their authority. They both find most of the savings by carefully monitoring vendor invoices against contract terms and conditions (like caps on price increases).

Overall vendor relationship management is a topic for another day. But some major organizations are beginning to include “relationship” specifications, along with a host of initiatives that encourage and monitor contract compliance, in their requests for proposals, terms and conditions, and statements of work.

Incidentally, do you know why we’re not good at contract management? Because the IT industry grew up on vendor form contracts, so we never got experience managing contracts. There’s nothing for a customer to manage in a vendor form contract because it doesn’t say the vendor is obligated to do anything.

But when you negotiate contracts full of specific vendor obligations, it’s more than necessary to be ready to manage the vendor’s compliance in completing the tasks in a contract.


JOE AUER is president of International Computer Negotiations Inc. (www.dobetterdeals.com), a Winter Park, Fla., consultancy that educates users on high-tech procurement. ICN sponsors CAUCUS: The Association of High Tech Acquisition Professionals. Contact him at joea@nulldobetterdeals.com.

Copyright by Computerworld, Inc., 500 Old Connecticut Path, Framingham, MA 01701. Reprinted by permission of Computerworld.

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